China vs. Qualcomm: Chip's 'Nationality' Still Matters

China is using every possible tool to pressure foreign companies. It appears a little too convenient for Chinese regulators to scrutinize multinationals for antitrust allegations while China's chip vendors, now "state-owned," become less transparent.

MADISON, Wis. — So, do we all agree that the semiconductor sector is "always a national business"?

I recently got that very comment from Jeremy Wang, Asia-Pacific executive director at the Global Semiconductor Alliance (GSA). We were discussing the emerging trend among leading Chinese fabless chip companies -- Spreadtrum Communications, RDA Microelectronics, and Montage Technology -- that have left or are leaving Nasdaq to become "privately owned" by China's state government funds.

Wang, one of the most astute China hands I've ever met, does not mince words in his perspective on historical events and current developments in the semiconductor industry. Chinese fabless companies delisting themselves from the US financial market is a "natural trend," he said. "Historically, there was no suitable Chinese financial market" when the first fabless companies were planning IPOs a decade ago. "Now the government has been emphasizing innovation and technology in which semiconductors play a key role."

I happen to agree with him.

Look at Japan, Taiwan, Korea, Europe, and even the United States. Every place has had its fair share of government assistance before the birth of local semiconductor companies. These governments have also engaged in fierce trade disputes on behalf of their own industries while exerting every form of coercion, pressure, and political tactics to get their local chip companies up and running.

Alternatives to going "national"?
Taiwan Semiconductor Manufacturing Co., for example, would have never been born without a government commitment to the nouvelle foundry model. Samsung wouldn't be the semiconductor behemoth it is now without a helping hand from the Korean government. Without help from the ministries in Tokyo, none of Japan's technology godzillas -- including Mitsubishi, Hitachi, Toshiba, and NEC -- would have ever created their own chip divisions and stuck to them a little too long.

Neither Wang nor I profess that nationalism (or protectionism, for that matter) is the only way for chip companies to grow locally. But historically, the success of every regional semiconductor industry came on the back of strong government interest and commitment. And we haven't necessarily found an alternative model, other than going "national."

Each country or region "has its unique DNA in terms of culture, skill, and competitive advantage," Wang said. In an ideal world, as promoted by the GSA, chip companies would eventually cross borders and find opportunities to take advantage of the "industry's supply chain and entire ecosystem."

However, the hard reality is that we find ourselves still stuck in nationalism. As I write this, we're seeing a lot of political action in China -- sometimes misguided -- to protect local chip companies.

Consider China's recent, fairly hypocritical moves to focus antitrust investigations on a host of foreign companies. Targets include Qualcomm, Microsoft, and a number of automotive manufacturers based in Europe, the United States, and Japan.

Qualcomm vs. China
Qualcomm has been under investigation since November by the National Development and Reform Commission (NDRC) over how the company licenses its patents and prices chipsets.

The latest development, which could complicate Qualcomm's case, is the firing of an antitrust expert based in China from a government advisory post after state-owned news media reported that he had received "huge rewards" from Qualcomm. The accusation is not directed at Qualcomm.

Hopefully the British government will grow some balls and do the same as all the countries listed unfortunately its not likely to happen. America protects many industries, so does France, Spain, Italy, China, Korea, Germany, Brazil etc. Find me one industry the UK government does the same with over 54% of all business and 80% of big business is foriegn owned in the UK mainly by America, France & Germany.